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Tweeting for investors

Remember how, in the lead up to the pieces of legislation eventually rolled up as the JOBS Act, Prof. John Coffee spoke derisively of changes to securities laws that would permit companies seeking financing to go "tweeting for investors?"

That day has not yet arrived, but it should, after the SEC reconsiders its proposed rules on the implementation of the lifting of the ban on general solicitation, as required by Title II of the JOBS Act.

Tweeting for investors will be okay, only for those offerings where all investors have been verified as accredited.

But I'm making a big assumption when I say that.

The assumption is that the SEC will not take up any of the hostile recommendations it has gotten to its proposed implementing rules, recommendations as to the content and timing of advertising that may be used in connection with a Rule 506(c)* offering.

Some folks, horrified by what Congress did in Title II of the JOBS Act, want the SEC to essentially kill the lifting of the ban on general solicitation and general advertising, by throttling what can be said, and when it can be said.

What might such restrictions on general solicitation and general advertising look like? We can't say, but it occurs to me that the "limited use advertisement" exemption in the State of Texas could be one possible model.

Now, there's nothing regressive about the Texas exemption. In the context of the current interplay of federal and state law, the Texas exemption actually serves to expand what issuers are permitted to do, within the boundaries of the State of Texas. But consider how the Texas model might be used to prevent any ability to tweet for investors under Rule 506(c).*

Here's how Texas describes its exemption:

"An issuer may use a 'limited use' advertisement to sell the offering to individual accredited investors. Such an advertisement must be filed with the Securities Commissioner 10 days prior to its use in Texas. There is no filing fee associated with this exemption. The content of the advertisement is limited by the Rule to a brief description of the securities, contact information, and a required statement."

And here's that required statement (source), verbiage that must be contained within the solicitation or ad:

"The securities have not been registered with or approved by the Texas Securities Commissioner and are being offered and sold pursuant to the exemption provided by §139.16 of the Rules and Regulations of the State Securities Board. This advertisement was filed with the Texas Securities Commissioner on or about (fill in date). The securities are being offered to, and may be purchased by, only those natural persons whose individual net worth, or joint net worth with that person's spouse, at the time of purchase of the securities, exceeds $1 million, excluding the value of the person's primary residence, or natural persons who have an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years, and who have a reasonable expectation of reaching that same income level in the current year."

That's too long to post on App.net, let alone Twitter!

*Note to legal geeks: I'm using 506(c) as shorthand for the offshoot of the rule, as proposed by the SEC, that may apply when general solicitation for general advertising is used; let's hope the existing rule, the proposed 506(b), survives, at least for a decent transitionary period.